Article Date:
June 2024

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Cost Segregation: A Great Strategy When?

One of the greatest tax benefits of owning residential rental property or non-residential commercial or investment property is depreciation—a deduction you get without spending any additional money.


Sadly, regular depreciation for real property is slow, taking anywhere from 27.5 years to a whopping 39 years.


But fortunately, there is a way you can speed up your depreciation deductions—especially during the first year or years you own your property: cost segregation.


What Is Cost Segregation?


When you purchase non-residential real property or residential rental property, you ordinarily pay a single lump sum to the owner, but you are actually purchasing more than one asset. Real property consists of



the land the building sits on, as well as any other surrounding land included with the purchase;


improvements that have been made to the land, such as landscaping, swimming pools, paved parking areas, and fences;


the building itself; and


personal property inside the building that is not a building component—for example (in residential rentals), refrigerators, stoves, dishwashers, and carpeting.


Most property owners depreciate all these items together (excluding the land, which is not depreciable). Residential rental property is depreciated over 27.5 years, while commercial property has a 39-year depreciation period. Both use the straight-line depreciation method—the slowest form of depreciation.1


But you have the option of depreciating each asset type separately. The technical name for this type of depreciation is “cost segregation.”


Personal property and land improvements have much shorter depreciation periods than commercial or residential buildings and building components, so you can depreciate them much more quickly. Personal property has a five- or seven-year ... Log in to view full article.

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